The Confidence Trap by Runciman David

Author:Runciman, David
Language: eng
Format: epub, pdf
Publisher: Princeton University Press
Published: 2014-03-14T16:00:00+00:00

OIL AND INFLATION

If American democracy lacked the resolve to fight the Vietnam War, it also lacked the resolve to pay for it. The United States did not lack the material resources to finance a conflict on this scale, costly as it was. The Vietnam War, at its peak, cost a little over 2 percent of the annual GDP (though defense spending in total reached nearly 10 percent), around half the comparable cost of the Korean War and less than a tenth of the cost of the Second World War.13 America could afford it. But America did not want to pay the price of affording it. This was not an absolute judgment any more than Vietnam was an absolute defeat. It was a relative one. Financing the war went alongside a raft of other commitments and objectives. Some of these related to the ongoing program of social reform initiated by the Johnson administration and largely continued under Nixon, which was proving very expensive. Others concerned the need to preserve the dollar as a global reserve currency under the terms of the Bretton Woods system. This meant maintaining the value of the dollar against gold. High public spending on war and social security made this increasingly difficult: rising inflation threatened a loss of confidence in the entire system. This challenge could be met in one of two ways. Either the American government could embark on a program of austerity and cutbacks to satisfy its growing number of international creditors, or it could cut the dollar loose from gold. Nixon chose the latter.

The so-called Nixon shock of August 15, 1971, involved a series of measures designed to free the United States from the constraints of Bretton Woods without signaling a complete abdication of monetary and fiscal discipline. Nixon broke the link between the dollar and gold, allowing the currency to be devalued, but he also imposed wage and price controls by presidential fiat and insisted on budget cuts. These executive decisions looked like a relapse into mild autocracy. But Nixon told the American public he was effectively putting his trust in American democracy, by freeing it from the need to satisfy the arbitrary demands of the money markets under the terms of Bretton Woods. Now the American people would have to prove their resolve to themselves. “A nation,” he exhorted them in a televised address on the evening he announced his decision, “has to have a certain inner drive in order to succeed.” Every action he had taken was designed “to help us snap out of the self-doubt, the self-disparagement that saps our energy and erodes our confidence in ourselves.” He went on:

Whether this Nation stays number one in the world’s economy or resigns itself to second, third, or fourth place; whether we as a people have faith in ourselves, or lose that faith; whether we hold fast to the strength that makes peace and freedom possible in this world, or lose our grip—all that depends on you, on your competitive spirit, your sense of personal destiny, your pride in your country and in yourself.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.